Guest column: The IRS scandal that wasn’t

A couple of weeks ago, right before our government shutdown crisis erupted, Lois Lerner, head of the tax-exempt division of the Internal Revenue Service, retired.

Michael Winship

A couple of weeks ago, right before our government shutdown crisis erupted, Lois Lerner, head of the tax-exempt division of the Internal Revenue Service, retired. But her story will go on because, as Politico's Lauren French wrote, the 30-year civil service veteran "is the political pinata that Congress still loves to whack months after she awkwardly acknowledged that the IRS wrongly scrutinized conservative groups for years."

Three congressional investigations are ongoing and, yes, mistakes were made, as the late Republican president and conservative icon Ronald Reagan once said. Big, goofy, stupid ones. But in reality, this is a story about how bureaucratic bungling was turned into scandal by right-wing politicians desperate to spin gold from straw.

They have sought to create a splash, to score points with their allies, make converts, seize the publicity spotlight and pull in some quick campaign cash while they're at it. But far worse, their staged controversy has distracted from a real Washington scandal: our inability to rein in the outrageous amounts of money used by the rich and powerful to secretly broker elections and buy our government.

If you're just tuning in, some basics: Among its other duties, as outlined in a tax code first passed a century ago, the IRS keeps an eye on nonprofit organizations that are exempt from paying taxes. They're called 501c's, and the groups we're specifically concerned with are called 501c4's. They're defined as social welfare organizations, meant to be civic groups looking out for the common good. But — and this is key — donors to a 501c4 don't have to reveal who they are.

So along comes the Supreme Court's Citizens United decision in 2010, which in the name of free speech unleashes unlimited campaign contributions. But suppose you're a corporation or a tycoon and want to keep all the cash you're pouring into the election of your favorite candidates under wraps? IRS rules say that 501c4's — those social welfare groups — can spend money on politics and campaigns, as long as it's not their primary activity.

In the wake of Citizens United, and with the realization that 501c4's could be used like bagmen for anonymous political bucks, applications for social welfare status at the IRS almost doubled in the years 2010 to 2012 — from 1,735 to 3,357. By the time November 2012 rolled around, those so-called social welfare organizations had poured more than $300 million into the election. According to the investigative journalism group Pro Publica, 84 percent of that money came from conservative groups like Karl Rove's Crossroads GPS and the Koch brothers' Americans for Prosperity.

All the applications for 501c4 tax-exempt status were sent to the Internal Revenue Service office in Cincinnati. The task was overwhelming, not only because of the sheer numbers but because the IRS regulations were so vague and contradictory. Trying to cut corners and red tape, the Cincinnati office decided to determine which groups were legit and which were covers for political mischief by implementing a keyword search - targeting words like "patriot" and "tea party." All hell broke loose.

Yet slowly but surely, the scandal narrative began to unravel. Corruption and conspiracy started giving way to fumble-fingered reality: that the whole thing was a colossal, bureaucratic screw-up on the part of IRS employees and that in fact, their word search included liberal groups as well as conservatives.

The purported IRS scandal remains at the top of the right wing's litany. In preparation for the 2014 midterm elections — and the fundraising that goes with them — the IRS is being cast as a boogeyman.

Far more troubling is that the current brawl over the IRS may make the agency too gun shy to properly police tax-exempt groups.

And much worse, the contretemps will prevent real reform; that in the rush to placate the right, the desperate need for overhaul of our campaign finance system — the fight against "dark money" and the anonymous, deep-pocketed power and control that come with it — will be backburnered once again.

Then we'll see the real victim in all of this: what's left of an increasing frail democracy.

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